Pricing cash settled on-the-run treasury futures contracts

ABSTRACT

The disclosed embodiments relate to determining a listing date, an expiration date and the cash settlement price of a futures contract, i.e. a Treasury Futures, for the delivery of the most recently issued, referred to as an on-the-run, US treasury Note of a particular maturity by reference to the U.S. Treasury Auction cycle and the difference between a resultant industry surveyed swap rate and a resultant industry surveyed swap spread of the respective tenors (time remaining until maturity) of the on-the-run treasury futures.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation under 37 C.F.R. §1.53(b) of U.S.patent application Ser. No. 13/181,177 filed Jul. 12, 2011 (AttorneyDocket No. 4672/11007AUS) now U.S. Pat. No. ______, the entiredisclosure of which is hereby incorporated by reference.

BACKGROUND

Futures Exchanges, referred to herein also as an “Exchange”, such as theChicago Mercantile Exchange Inc. (CME), provide a marketplace wherefutures and options on futures are traded. Futures is a term used todesignate all contracts covering the purchase and sale of financialinstruments or physical commodities for future delivery or cashsettlement on a commodity futures exchange. A futures contract is alegally binding agreement to buy or sell a commodity at a specifiedprice at a predetermined future time. An option is the right, but notthe obligation, to sell or buy the underlying instrument (in this case,a futures contract) at a specified price within a specified time. Eachfutures contract is standardized and specifies commodity, quality,quantity, delivery date and settlement. Cash Settlement is a method ofsettling a futures contracts by cash rather than by physical delivery ofthe underlying asset whereby the parties settle by paying/receiving theloss/gain related to the contract in cash when the contract expiresbased on a reference rate such an interest rate, exchange rate or indexrate or value which is substantially out of the control of the parties.

Typically, the Exchange provides a “clearing house” which is a divisionof the Exchange through which all trades made must be confirmed, matchedand settled each day until offset or delivered. The clearing house is anadjunct to the Exchange responsible for settling trading accounts,clearing trades, collecting and maintaining performance bond funds,regulating delivery and reporting trading data. Essentially mitigatingcredit. Clearing is the procedure through which the Clearing Housebecomes buyer to each seller of a futures contract, and seller to eachbuyer, also referred to as a “novation,” and assumes responsibility forprotecting buyers and sellers from financial loss by assuringperformance on each contract. This is effected through the clearingprocess, whereby transactions are matched. A clearing member is a firmqualified to clear trades through the Clearing House. In the case of theCME's clearing house, all clearing members not specifically designatedas Class B members are considered Class A clearing members. In the CMEthere are three categories of clearing members: 1) CME clearing members,qualified to clear transactions for all commodities; 2) IMM clearingmembers, qualified to clear trades for only IMM and IOM commodities; and3) IMM Class B clearing members, solely limited to conductingproprietary arbitrage in foreign currencies between a singleExchange-approved bank and the IMM and who must be guaranteed by one ormore Class A non-bank CME or IMM clearing member(s). Note that a“member” is a broker/trader registered with the Exchange.

With respect to cash settled contracts, at settlement or otherwise uponexpiration of the contract, the Exchange further facilitates therequisite exchange of value by computing value of the positions held bythe parties with respect to the market value of underlying asset.

Accordingly, to create a new product, such as a new type of futurescontract for a particular underlying asset, the Exchange needs todetermine how to value the underlying asset for the purpose ofsettlement, when to list the new contract, or otherwise offer it fortrading and how long it should trade for before expiring and settling.For contracts requiring physical delivery of the underlying asset,creation, trading and settlement of such contracts is not difficultassuming there is an adequate supply of the underlying asset tofacilitate physical delivery thereof when required. Alternatively, ifthe underlying asset is relatively easy to value but difficult tophysically deliver, such as where the underlying asset is an index orportion thereof, the delivery may be specified as cash settlement.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a block diagram of an exemplary network for tradingOn-The-Run (“OTR”) Treasury futures contracts according to oneembodiment.

FIG. 2 a more detailed block diagram of the OTR Treasury Futuresscheduling and valuation according to one embodiment.

FIG. 3 a block diagram of an exemplary implementation of the system ofFIGS. 1 and 2 for facilitating scheduling and valuation of OTR TreasuryFutures.

FIG. 4 shows an illustrative embodiment of a general computer system 400for use with the system of FIG. 1.

FIG. 5 depicts a flow chart showing operation of the system of FIGS.1-3.

FIGS. 6A-6C show exemplary listing cycles for 2, 5 and 10 year OTRTreasury Futures contracts.

DETAILED DESCRIPTION OF THE DRAWINGS AND PRESENTLY PREFERRED EMBODIMENTS

A system is disclosed for determining a listing date, an expiration dateand the cash settlement price of a futures contract, i.e. a TreasuryFutures, for the delivery of the most recently issued, referred to as anon-the-run US treasury Note of a particular maturity by reference to theU.S. Treasury Auction cycle and the difference between a resultantindustry surveyed swap rate and a resultant industry surveyed swapspread of the respective tenors (time remaining until maturity) of theOTR treasury futures.

As discussed above, to create a new product, such as a new type offutures contract for a particular underlying asset, the Exchange needsto determine how to value the underlying asset, when to list the newcontract, or otherwise offer it for trading and how long it should tradefor before expiring. For contracts requiring physical delivery of theunderlying asset, creation, trading, and settlement of such contracts isnot difficult assuming there is an adequate supply of the underlyingasset to facilitate physical delivery thereof when required.Alternatively, if the underlying asset is relatively easy to value butdifficult to physically deliver, such as where the underlying asset isan index or portion thereof, the delivery may be specified as cashsettlement.

However, when the underlying asset is difficult to value and difficultto deliver, creation of a futures contract based thereon is morecomplicated. For example, it may be desirable to trade futures contractswhere the underlying asset is a U.S. Treasury, such as an the“on-the-run” issue of a U.S. Treasury Note for a particular tenor,necessitating a method of either delivering or valuing such notes. Whilethere exists a certain demand for derivative exposure to the respectiveand singular, “on-the-run” (most recently auctioned Treasury securities)point at each benchmark tenor of the Treasury yield curve (2-year,5-year, 10-year, and 30-year maturities), any such futures contractsthat call for physical delivery of a single security at expiration, theon-the-run security for instance, would present challenges, as well asgamer regulatory scrutiny, relating to potential restriction of physicalsupply. Physical supply of Treasury securities is a result of fiscal andmonetary policy of the United States, something which is completely outof the control, and irrespective of the Exchange's desire to providerobust, risk-management solutions to the marketplace. These factors makeexpiration by physical delivery of a single-issue futures deliverableundesirable.

Existing Treasury futures contracts, therefore, may utilize a basket ofphysical delivery securities, conversion factors, and a “cheapest todeliver” valuation model to approximate cash-market Treasury exposure.This method, however robust, generally either represents price dynamicsof a Treasury sector or that of one or several Treasury securities,without certainty to the respective benchmark security at a specifictenor on the Treasury yield curve.

Secondary fixed income markets, including those for U.S. Treasurysecurities, are fragmented across multiple execution venues, includingphone brokerage and multiple electronic trading platforms. Secondaryfixed income markets such as these do not enjoy any such “consolidatedtape,” i.e. a unifying mechanism among markets providing pricetransparency therebetween, that exists in the U.S. equity markets. Assuch, although secondary markets for U.S. Treasury securities areconsidered very liquid, price differentials exist among secondarymarkets at any given time. Accordingly, there exists no currentmethodology for ascertaining a consensus on-the-run U.S. Treasury yieldsor prices for the 2-year, 5-year, 7-year, 10-year, and 30-year points onthe U.S. Treasury yield curve.

One method of valuing the underlying asset may be based on over thecounter (“OTC”) Total return swaps on a basket of representativeTreasury securities to produce a rate of return that is equal to thebasket, minus any commissions and other administration fees. However,the prices utilized are generally that of the liquidity provider only,not necessarily representative of market consensus yields or prices,which, as mentioned above, may be significantly divergent of the marketconsensus.

The disclosed embodiments relate to valuing the OTR treasury based on anindustry consensus which avoids skewing the value based on any onemarket participant or sector thereby creating a contract value for whichthe market may have confidence in.

The disclosed embodiments may have potential application in the interestrate derivatives area (futures, options on futures, and OTC cleared orun-cleared swaps) where it may be utilized as an accurate and effectiveexposure or hedging vehicle for most recently auctioned, U.S. Treasurysecurities, referred to as “on-the-run”. A suite of products may beoffered on the CME Globex electronic trading platform and the CBOTTrading Floor and cleared by CME Clearing House, such as the CBOT2-Year, 5-Year, and 10-Year On-The-Run U.S. Treasury futures.

The disclosed embodiments may also have potential applications in otherareas of interest rate derivatives, such as options on futures or OTCswaps (over-the-counter cleared or un-cleared swaps) where they may beutilized as an accurate and effective exposure or hedging vehicle formost recently auctioned (“on-the-run”) U.S. Treasury securities.However, it has the added advantage of potentially being offered in theform of a futures contract transacted on a widely-distributed electronictrading platform and subject to the financial sureties commonlyassociated with futures contracts.

Generally, the disclosed embodiments generate a “final settlementfutures price” utilized for final cash-settlement at expiration. Thefinal settlement price utilizes a process that calculates a marketconsensus yield for each product's tenor, e.g. a U.S. Treasury Note of 2year, 5 year or 10 year tenor, and transforms that consensus yield intoa “final settlement futures price” that serves as that contractexpiration month's final mark-to-market at expiration, i.e. the price orvalue reflecting its current market value at the time of settlement.

In one embodiment, a combination of two robust industry surveys isutilized to ascertain a consensus on-the-run Treasury yield for 2-year,5-year, and 10-year Treasury securities. In one embodiment, consensusresults are determined by subtracting the International Swaps andDerivatives Association (ISDA®) surveyed resulting swap spread from theISDA® surveyed resulting swap rate of the respective tenors in order toarrive at the consensus benchmark on-the-run Treasury yield on acontract's given expiration date. Ascertainment of consensus on-the-runyields by utilizing ISDA survey results in this way incorporatesmultiple inputs from multiple secondary market sources.

Once the respective consensus on-the-run yield is determined, the yieldis utilized in a bond pricing formula, shown below, rounded to thenearest ¼ of 1/32nd price point utilizing a rounding formula, describedbelow in MS Excel® terminology, resulting in a present value of theunderlying U.S. Treasury Note which is then utilized as the finalsettlement price of the futures contracts for the delivery thereof.Moreover, the final settlement price is utilized to expire the contractsby cash-settlement utilizing a final mark-to-market.

As opposed to basing the computation of the yield on the yield tomaturity (“YTM”) of the underlying U.S. Treasury, i.e. the rate ofreturn if held until maturity based on the current market price, parvalue, coupon rate and remaining time to maturity, the disclosedembodiments utilize the (SY−SP) which is distinctly different. YTM isone measure of a fixed income security's value while (SY−SP) are ratesfrom the Interest Rate Swap market that are published daily byIntercapital Broker (“ICAP”) on behalf of ISDA. YTM is an observedmarket statistic that can be observed/calculated in real time anytimethe particular fixed income security is open for trading on any numberof different trading platforms, while (SY−SP) are ISDA survey resultswhich are surveyed and tallied from the ISDA panel members once per dayat 11:00 a.m. NY time (some rates are collected twice per day (4 pm NY),but not all of them). (SY−SP) has one source, the ISDA/ICAP surveyedresults of the panel members, whereas 10 different market participantscould potentially have 10 different opinions of a security's YTM at anygiven time due to the fragmentation of the U.S. fixed income markets.Using the ISDA (SY−SP) removes ambiguity from the final figure, as thereexists no argument as to what the ISDA swap rate and swap spread is fora particular tenor for any give business day. Furthermore, (SY−SP) issomewhat constrained in the fact that it allows you to determine a priceonly once per day based on 11:00 am NY time, which accommodates thedetermination of the final settlement price of a cash-settled futurescontract.

Accordingly, the disclosed embodiments provide a robust process thatwill always result in a consensus, on-the-run benchmark yield that isfully representative of the secondary markets at expiration. Further,the resulting on-the-run yield may then be used to calculate anddetermine a final settlement price in order to cash-settle the contractsat expiration. Cash-settlement at expiration ensures cash-futures priceconvergence. Also, expiry by cash-settlement is not impacted by theconstraints of deliverable supply that is present in any existingphysical delivery contract.

In one embodiment, final settlement value at expiration, in pricepoints, may be computed as

100*[C/(SY−SP)_(m)+(1−C/(SY-SP)_(m))*(1+(SY−SP)_(m)/200)^(−2m)]

Where:

-   -   100 is used to align the decimal point of the result and is        implementation dependent;    -   C=notional semiannual coupon;    -   (SY−SP)_(m)=m ISDA Benchmark Swap Rate for the pertinent term to        maturity minus the corresponding m ISDA Swap Spread on the last        day of trading. These figures are published at approximately        10:30am Chicago time, and are expressed in percent terms. Final        cash settlement occurs on the expiring contract's Last Trading        Day;    -   m=term to maturity (2, 5, or 10 years) of ISDA Benchmark Swap        Rate and ISDA Swap Spread;    -   200 accounts for the semi-annual nature of the notional coupon        with a multiplier of 100; and    -   the exponent results in the number of notional or theoretical        interest payments for a Note with a semi-annual coupon payment.

Example: If m ISDA Benchmark is 3.966% and m ISDA Swap Spread is 0.315%,then (SY−SP)m equals 3.651%. The final settlement price is the finalsettlement value rounded to nearest one quarter of one thirty-second ofone point.

Alternate sources of the consensus survey results may be used todetermine the benchmark swap rates and swap spreads. In the examplesabove, ISDA/ICAP is used as the surveying agency. Other entities may besubstituted to obtain such information, such as IDC, Bloomberg, andinternal polling of dealers, data vendors, or traders.

Final settlement price is the final settlement value rounded to nearestone quarter of one thirty-second of one point, as illustrated inMicrosoft Excel® terminology below:

A=SYm

B=SPm

C=(SY−SP)m

D=100000*((4/(100*(SY−SP)m))+((1−(4/(100*(SY−SP)m)))*((1+((100*(SY−SP)m)/200))̂−20)))

E=CEILING(D,1000/128)

F=ABS(E−D)

G=E/1000

H=FLOOR(D,1000/128)

I=ABS(H−D)

J=H/1000

K=IF(F>I,H,IF(F=I,E,E))

L=K/1000

FINAL CASH-SETTLEMEN PRICE=TRUNC(L)&” ”((L−TRUNC(L))*32)&“/32”

-   -   m=term to maturity (2, 5, or 10 years) of m ISDA® Benchmark Swap        Rate and mISDA® Swap Spread.

Accordingly, OTR Treasury futures may trade in price terms and expire bycash settlement, with reference to on-the-run Treasury yields asreflected in ISDAFIX Benchmark Swap Rates and Swap Spreads on the lastday of trading. The final settlement price formula converts theunderlying on-the-run Treasury yield into a price index, whose dynamicsresemble those of a hypothetical $100,000 face-value Treasury notepaying a semi-annual coupon rate of 4 percent per annum. In oneimplementation, OTR Treasury futures may trade both in open outcry andon CME Globex, as well as executed via ex-pit transactions.

The disclosed embodiments further relate to determining, or otherwisecomputing, the listing date and expiry/expiration date of an on-the-run(OTR) treasury futures contract by reference to the auction cycle datesfor the underlying on-the-run Treasury notes. The listing date is thefirst date that the contract can be traded whereas the expiration dateis final day of settlement, which may or may not coincide with the lasttrading day).

In particular, existing Treasury futures utilize listing and expirationschedules that are “standard” with respect to a specific number of dayswithin a calendar month. For example, CME Group Treasury futures' lasttrading dates are defined as the last business day of the contract month(2-Year, 3-Year, and 5-Year Treasury futures) or the 8th to lastbusiness day of the contract month (10-Year, Bond, and Long-TermTreasury Note and Bond futures).

Expiring contracts in this manner may not adequately take intoconsideration the underlying Treasury securities market's timing ofTreasury auctions, which determines the identity of each benchmark,on-the-run (most recently auctioned) Treasury security at each U.S.Treasury issue's tenor.

Furthermore, existing derivative solutions do not incorporate the periodfor which a Treasury security has been announced, but not yet auctioned,otherwise known as the “when-issued” or “WI” trading period. When Issuedtrading allows market participants to trade a Treasury security that hasyet to be auctioned. Trade settlement for all When Issued tradingtypically occurs after the Treasury auction occurs, on the auctionsettlement date. When Issued U.S. Treasury securities are an activelytraded cash market, yet there exists no derivatives for these securitiesduring these periods. The lack of this feature reduces the riskmanagement utility of existing solutions for market participants thatplan to participate in upcoming U.S. Treasury securities auctions.

The disclosed embodiments determine a contract's particular listing dateand a contract's particular final expiration date by aligning thefutures contract month listing schedule and expiration schedule withthat of the U.S. Treasury's Tentative Auction Schedule.

In one embodiment, the 2-Year and 5-Year OTR Treasury futures contractmonth listings are enabled for trading on the exact Trade Date thatcorresponds to the Treasury's Auction Announcement Date, also known asthe beginning of when-issued trading. In one embodiment, the 10-Year OTRTreasury futures are enabled for trading on the exact Trade Date thatcorresponds to the business day following the U.S. Treasury's AuctionAnnouncement Date, also typically known as the day after the beginningof when-issued trading. As the U.S. Treasury's Tentative AuctionSchedule is published on the Treasury's Auction Announcement Date andonly looks forward 3 months, it will not list the date of the nextquarterly 10 year Note auction. Therefore as the 10 year Note AuctionAnnouncement date can presently only be known on that date, and thisdata must be suitably programmed into the Exchange's record keepingsystems, the listing date is set as the next business day. It will beappreciated that this is implementation dependent and that, in otherembodiments where the next quarterly 10 year Note auction is announcedin advance and/or the Exchange's record keeping systems can be updatedon the same day as the announcement, the listing date of the 10 year OTRTreasury Futures may be enabled on the exact Trade Date that correspondsto the Treasury's Auction Announcement Date as with the 2 year and 5year OTR Treasury Futures.

All OTR Treasury futures contracts expire on the morning of the date ofthe new U.S. Treasury note auction for its tenor within the named monthof expiration. The expiration date is selected based on the date of thenext new auction listed in the U.S. Treasury's Tentative AuctionSchedule on the futures contract's listing date.

This preciseness of the listing and expiration schedules may ensure thatmarket participants will have the ability to trade the derivativeproduct during the underlying Treasury security's “when-issued” period.Furthermore, it enables direct and accurate exposure to each newbenchmark Treasury security, as the contract listings correspond withthe auction timing and frequencies. To explain further, the 2-Year and5-Year OTR Treasury futures have monthly expiration schedules becausethe underlying new securities are auctioned on a monthly basis, whilethe 10-Year OTR Treasury futures have quarterly expirations because theunderlying new securities are auctioned on a quarterly basis. Thedisclosed embodiments remove any inefficient overlap period. On themorning of the next new auction, the current OTR Treasury futurescontract month may expire literally two hours before the new auctionthat afternoon.

2-Year, 5-Year, and 10-Year OTR Treasury futures listing cycles willcorrespond to the auction cycles for 2-year, 5-year, and 10-year U.S.Treasury notes, respectively. The lifecycle of each futures contractwill match the underlying Treasury note's lifecycle as the “on-the-run”issue.

Each OTR Treasury futures contract will be listed around the beginningof WI trading. That is, each 2-Year or 5-Year OTR Treasury futurescontract will be listed for trading on the Auction Announcement Date forthe corresponding underlying reference (2-year or 5-year) Treasury note,whereas each 10-Year OTR Treasury futures contract will be listed fortrading on the business day following the Auction Announcement Date forthe contract's underlying reference 10-year Treasury note. The futurescontract will continue to trade throughout this Treasury note's tenureas the “on-the-run” issue. Trading in the contract will terminate on themorning of the auction of a new Treasury note, approximately two hoursbefore the contract's underlying reference Treasury note ceases to bethe “on-the-run” issue and becomes the “old” Issue, also knowngenerically as “off-the-run”.

Initially, one futures expiry will be listed for each of the threecontract grade terms to maturity (2-year, 5-year, and 10-year).Subsequently, and in alignment with the Treasury Department's AuctionAnnouncement schedule, a new futures expiry will be listed approximatelythree to five business days prior to expiration of the nearby futures.The expiration/last trading day for a specific futures contract is thedate of the auction of a new Treasury note (corresponding to thecontract's term to maturity) in that futures contract's named deliverymonth. Typically, this date will be as indicated in the latest“Tentative Auction Schedule of U.S. Treasury Securities” as published bythe U.S. Treasury Department. Once this date is set as the contract'slast trading day, it is fixed. It will remain the lasttrading/expiration day for that futures contract, regardless of anychanges that the U.S. Treasury Department might subsequently make to itsauction schedule.

2-Year and 5-Year OTR Treasury futures will have monthly expiries. Thefirst trade date for each 2-Year or 5-Year OTR Treasury futures contractis the auction announcement date for, and the beginning of WI tradingin, that futures contract's underlying reference 2-year or 5-yearTreasury note. The futures contract's last trading day, and its finalsettlement, takes place on the day of the next scheduled auction of a2-year or a 5-year Treasury note, respectively, in the following month.

10-Year OTR Treasury futures will have quarterly expiries in February,May, August, and November. While the U.S. Treasury conducts auctions of10-year Treasury notes every month, it auctions new 10-year issues onlyfour times a year, in February, May, August, and November. An auction inany other month is a “re-opening” that adds to the amount outstanding ofwhatever 10-year note happens to be on-the-run at the time. Since thesere-opening auctions do not change the status of the on-the-run Treasuryissue, 10-Year OTR Treasury futures likewise adhere to a quarterlylisting and expiration cycle.

Given the limited publication schedule for the Tentative AuctionSchedule for U.S. Treasury Securities, the first trade date for any10-Year OTR Treasury futures contract is the business day following theAuction Announcement Date for the contract's underlying reference10-year Treasury note, i.e., the day after the beginning of WI tradingin that note. The last trading day for the futures contract, and itsfinal settlement, is on the date given by the Tentative Auction Schedulefor the auction of a new 10-year Treasury note three months later.

TABLE 1 ON-THE-RUN U.S. TREASURY FUTURES CONTRACT SPECIFICATIONS (Alltimes are Chicago time (CT), unless otherwise noted) Underlying Thenotional price of a 2-Year, 5-Year, or 10-Year U.S. Treasury noteInstrument with $100,000 notional face value, paying a semiannual couponat the rate of 4 percent per annum. The price is based on thecorresponding on-the-run Treasury note yield of the specified term tomaturity.. The on-the-run Treasury note yield is derived as the ISDA ®Benchmark Swap Rate minus the ISDA Swap Spread, both at the contractgrade term to maturity. Price Par is on the basis of 100 points. Basis2-Year and 5-Year OTR Treasury Futures: Points ($1,000) and quarters of1/32 of a point. For example, 102-202 represents 102 and 20.25/32nds,102-205 represents 102 and 20.5/32nds, 102-207 represents 102 and20.75/32nds, and 102-21 represents 102 and 21/32nds. 10-Year OTRTreasury Futures: Points ($1,000) and halves of 1/32 of a point. Forexample, 126-16 represents 126 and 16/32nds, and 126- 165 represents 126and 16.5/32nds. Minimum 2-Year and 5-Year OTR Treasury Futures:One-quarter of 1/32 of one Price point, or $7.8125 per contract.Increment 10-Year OTR Treasury Futures: One-half of 1/32 of one point,or $15.625 per contract, except for intermonth spreads, where theminimum price fluctuation shall be one-quarter of 1/32 of one point, or$7.8125 per contract. Contract Expiry listings correspond to U.S.Treasury auctions for 2-year, 5- Months year, and 10-year Treasurynotes. Final Settlement Date is the morning of the following newTreasury note auction (in the named expiry month). Initially, one expirywill be listed. Deferred expiries will be listed approximately 3-5business days prior to expiration of the nearby expiry. 2-Year and5-Year OTR Treasury futures: 2- and 5-Year OTR Treasury futures willhave monthly expiries. The deferred expiry will be listed on the auctionannouncement date of the underlying reference Treasury note (thebeginning of when Issued (WI) trading). 10-Year OTR Treasury futures:10-Year OTR Treasury futures will have February, May, August, Novemberexpiries. The deferred expiry will be listed on the business dayfollowing the underlying reference Treasury note auction Announcementdate (the day after the beginning of WI trading). Due to the limitationsof the U.S. Treasury's Tentative Auction Schedule, the first trade datefor any 10-Year OTR Treasury futures expiry is the business dayfollowing the Announcement Date of the underlying reference 10-yearTreasury note, i.e., the day after the beginning of WI trading. The lasttrading day/final settlement takes place on the date of the nextscheduled new 10-Year note auction in the following quarter. LastDefined at time of listing as the date of the corresponding new TradingTreasury note auction in the named expiry month, as indicated on the Daymost recently published Tentative Auction Schedule of U.S. TreasurySecurities. Trading in an expiring contract ceases at 10:01 a.m. on thelast trading day. Final Cash settlement. The final settlement value,measured in price points, Settlement is determined as: Price 2-Year:100 * [4/(SY − SP)₂ + (1 − 4/(SY − SP)₂) * (1 + (SY − SP)₂/200)⁻⁴]5-Year: 100 * [4/(SY − SP)₅ + (1 − 4/(SY − SP)₅) * (1 + (SY −SP)₅/200)⁻¹⁰] 10-Year: 100 * [4/(SY − SP)₁₀ + (1 − 4/(SY − SP)₁₀) * (1 +(SY − SP)₁₀/200)⁻²⁰] (SY − SP)₂, (SY − SP)₅, and (SY − SP)₁₀ represent,respectively, ISDAFIX Benchmark Rates for the 2-Year, 5-Year, and10-Year term to maturity minus the ISDAFIX Swap Spread for the same termto maturity, as published at approximately 10:30 a.m. on the lasttrading day. (For example, if the ISDAFIX Benchmark Rate is 3.966percent and the ISDAFIX Swap Spread is 0.315 percent, then (SY − SP)equals 3.651 percent.) Final settlement price is final settlement valuerounded to nearest one-quarter of 1/32 of one point. Trading CME Globex:5:30 p.m.-4:00 p.m., Sunday-Friday Hours Open Outcry: 7:20 a.m.-2:00p.m., Monday-Friday Ticker CME Globex: 2-Year: T2 5-Year: T5 10-Year: TNSymbols Open Outcry/Clearing: 2-Year: TWO 5-Year: FIV 10-Year: TEN

As shown in Table 1, in one embodiment, trading in an expiring contractceases at 10:01 a.m. Chicago time on its last trading day. The Exchangemay then determine the contract final settlement price, as describedabove, on the basis of the pertinent on-the-run U.S. Treasury noteyield, defined by the ISDA® Benchmark Swap Rate minus the ISDA SwapSpread, as determined in that morning's ISDAFIX survey. Note that, forany given term to maturity, the Swap Spread may simply be the differencebetween the on-the-run Treasury yield and the par swap rate. The ISDAFIXsurvey is conducted at approximately 10:00 a.m., and the resultant ISDABenchmark Swap Rates and Swap Spreads are generally published at 10:30a.m. ISDAFIX is described in more detail below

Final Settlement Values for OTR Treasury Futures=

-   -   2-Year: 100*[4/(SY−SP)₂+(1−4/(SY−SP)₂)*(1+(SY−SP)₂/200)⁻⁴]    -   5-Year: 100*[4/(SY−SP)₅+(1−4/(SY−SP)₅)*(1+(SY−SP)₅/200)⁻¹]    -   10-Year: 100*[4/(SY−SP)₁₀+(1−4/(SY−SP)₁₀)*(1+(SY−SP)₁₀/200)⁻²⁰ ]

Example: 10-Year OTR Treasury Futures

-   -   Assume that on expiration day for a 10-Year OTR Treasury futures        contract, the Morning ISDAFIX 10-Year Swap Rate is 2.601 percent        and the ISDAFIX 10-Year Swap Spread is 0.043 percent (i.e., 4.3        bps). The Exchange computes the on-the-run 10-year Treasury        yield (SY−SP)₁₀ as 2.558 (equal to 2.601 minus 0.043).        Accordingly, the contract's final settlement value would be:

$\begin{matrix}{\begin{matrix}{{\$ 100}*\left( {{4/\left( {{SY} - {SP}} \right)_{10}} +} \right.} \\\left. {\left( {1 - {4/\left( {{SY} - {SP}} \right)_{10}}} \right)*\left( {1 + {\left( {{SY} - {SP}} \right)_{10}/200}} \right)^{- 20}} \right)\end{matrix} = {{\$ 100}*\left( {{4/2.558} + {\left( {1 - {4/2.558}} \right)*\left( {1 + {2.558/200}} \right)^{- 20}}} \right)}} \\{= {{\$ 112}{.65252}}} \\{= {112 - {{20.88/32}\; {nds}}}}\end{matrix}$

The final settlement price is 112 21/32nds, i.e., the final settlementvalue rounded to the nearest ¼ of 1/32nd.

For the US dollar swap market, the ISDAFIX survey occurs each businessday at 11:00 a.m. New York time. It covers 13 terms to maturity: 1 yearthrough 10 years, inclusive, plus 15, 20, and 30 years. ForTreasury-swap spreads, the survey's scope is 6 terms to maturity: 2years through 5 years, inclusive, plus 7 and 10 years.

An ICAP or Reuters representative canvasses a panel of contributingdealers for their par swap rate quotes and swap spread quotes. Thedealers in the canvass are selected and impaneled by ISDA, ICAP, andReuters on the basis of each contributor's reputation among dealers,perceived expertise, credit standing, and scale of activity in the USdollar swap market. The US dollar contributor panel currently comprises15 institutions:

Bank of America Barclays Bank BNP Paribas Citigroup Credit SuisseGoldman Sachs HSBC Deutsche Bank J P Morgan Chase Mizuho Morgan StanleyNomura RBS UBS Wells Fargo

For any given term to maturity, each contributing dealer provides to theICAP or Reuters surveyor the midpoint of its own bid/offer spread, i.e.,the average of the rate levels (or spread levels) at which that dealerwould itself offer and bid a swap (or swap spread), for a notionalamount of $50 million. Importantly, the dealer's submission should be afunction of its own bid/offer spread, not where it sees mid-market ratesor swap spreads being quoted away from itself. Polling takes place byelectronic interface (or, in some instances, by email or telephone).During the polling interval, a contributing dealer may update or amendthe mid-market quotes it has submitted.

At the conclusion of the polling interval, ISDAFIX Benchmarks aredetermined as trimmed means. For US dollar swap rates and swap spreads,the Benchmark value at each term to maturity is calculated by:

-   -   (1) eliminating the four highest and the four lowest of the        mid-market submitted quotes, and then    -   (2) taking the simple average of the mid-market quotes that        remain after the sample has been trimmed.

If every contributing dealer has reported, then the resultant BenchmarkSwap Rate or Swap Spread will be an average of seven midmarket quotes. AUS dollar Benchmark will be computed and posted, however, as long as atleast 10 contributing dealers have participated. Although contributingdealers may submit their mid-market quotes up to five decimal places ofprecision, the ISDAFIX Benchmarks are computed to just three decimalplaces. The ISDAFIX Benchmark values, and the mid-market quotessubmitted by each contributing dealer, are published on Reuters andBloomberg screens at around 11:30 a.m. New York time. To learn more,visit www.isda.org.

The disclosed embodiments facilitate:

-   -   Direct futures price exposure to on-the-run Treasury note yields        (2-, 5-, and 10-year)    -   Cross-margining with other CME Group interest rate contracts    -   Enables synthetic replication of TED spreads and Swap spreads        vs. Eurodollar and Swap futures    -   Other potential applications include yield curve spreads vs.        cash Treasuries, yield curve spreads among OTR futures, and        inter-market spreads vs. conventional physical delivery Treasury        futures

The disclosed embodiments may be applied to:

-   -   TED Spreads—Synthetic 2-year and 5-year TED spreads, via        inter-market spreads against the CME Group's Eurodollar futures        (2-Year Bundle and 5-Year Bundle).    -   Treasury-Swap Spreads—Synthetic Swap spreads, via inter-market        spreads against the CME Group's Swap futures. Spreads between        OTR futures and Eurodollar futures or Swap futures should be        more manageable and capital-efficient compared to alternatives.    -   Treasury Yield Curve Spreads—Synthetic and precise versions of        Treasury yield curve strategies (2-year/10-year, 2-year/5-year,        and 5-year/10-year curve spreads, and the 2-year/5-year/10-year        butterfly), with the benefits of cross-margining, and without        the encumbrance of separate financing of one or more legs of the        trade.    -   The popularity of ETFs based on Treasury securities suggests        that the OTR futures may appeal to retail participants who are        interested in using futures to take views on Treasury yields,        but who are ill-equipped to deal with physical delivery or        valuing the optionality of existing Treasury futures.    -   Additional Points on the Yield Curve/Clarity of Maturity        Exposure—When market yields are low—specifically, below 6        percent—OTR futures will give market participants access to        points on the Treasury yield curve that are effectively        unavailable through the existing Treasury futures.    -   Synthetic CTD—OTR Treasury Basis Trades    -   Relative value trades between the points on the yield curve that        existing    -   Treasury futures CTD's represent vs. the on-the-run points of        the yield curve.    -   Short Selling/Substitutes—OTR futures would be a boon for        fiduciary money managers who supervise plans that forbid short        selling of Treasury securities but that permit short positions        in listed futures contracts. OTR futures would also benefit any        market practitioner who does not have direct access to the        Treasury repo market, especially CTAs and “futures only”        proprietary traders.    -   Treasury futures that expire by cash settlement would appeal to        potential for whom physical delivery poses challenges. For        example, some fiduciary money managers supervise plans that        forbid the use of physical delivery derivative contracts but        permit cash-settled contracts.    -   “When-Issued” Trading—OTR futures should furnish an        exchange-listed alternative to over-the-counter Treasury        rate-locks.

Listing Example: December 2010 2-Year OTR Treasury Futures:

-   -   The underlying reference for the December 2010 futures contract        is the 2-year Treasury note that is auctioned in November 2010.        December 2010 futures are listed for trading on the Auction        Announcement Date for this Treasury note.    -   Moreover, the December 2010 futures will be listed so as to        cease trading on the day in December 2010 which the Tentative        Auction Schedule of U.S. Treasury Securities indicates as the        date of auction for the next following new 2-year Treasury note.        Termination of trading on the last trading day will occur at        10:01 a.m., approximately two hours before the December 2010        contract's underlying Treasury note ceases to be the on-the-run        Treasury note. Upon expiration, the final settlement price of        the December 2010 futures will be determined by the yield to        maturity on a Treasury note with approximately 1 year 11 months        of remaining term to maturity.

Listing Example: February 2011 10-Year OTR Treasury Futures:

-   -   The underlying reference Treasury note for the February 2011        10-Year OTR Treasury futures contract is the 10-year Treasury        note that is auctioned in November 2010.    -   The February 2011 futures would begin trading (hypothetically)        on 4 Nov. 2010, the business day after announcement of the        auction of this Treasury note.    -   Moreover, the February 2011 futures will be specified to cease        trading on the date given by the freshly published Tentative        Auction Schedule for the next auction of a new 10-year Treasury        note in February 2011. Termination of trading on the last        trading day will occur at 10:01 a.m., approximately two hours        before the February 2011 contract's underlying Treasury note        ceases to be the on-the-run 10-year Treasury note. Upon        expiration, the final settlement price of the February 2011        futures will be determined by the yield to maturity on a        Treasury note with approximately 9 years 9 months of remaining        term to maturity.

FIGS. 6A-6C show exemplary listing cycles for 2, 5 and 10 year OTRTreasury Futures contracts.

Referring now to FIG. 1, there is shown a block diagram of an exemplarynetwork 100 for trading futures contracts, including in which cashsettled OTR Treasury Futures contracts may be implemented, according tothe disclosed embodiments. The network 100 couples market participants104, 106, such as those entities 104 wishing or needing to trade in OTRTreasury Futures contracts, with an exchange 108, such as the CME, alsoreferred to as a central counterparty or intermediary, via acommunications network 102, such as the Internet, an intranet or otherpublic or private, secured or unsecured communications network orcombinations thereof. The network 100 may also be part of, oralternatively coupled with a larger trading network, allowing marketparticipants 104 106 to trade other products, such as futures contracts,options contracts, foreign exchange instruments, etc., via the exchange108.

Herein, the phrase “coupled with” is defined to mean directly connectedto or indirectly connected through one or more intermediate components.Such intermediate components may include both hardware and softwarebased components. Further, to clarify the use in the pending claims andto hereby provide notice to the public, the phrases “at least one of<A>, <B>, . . . and <N>” or “at least one of <A>, <B>, . . . <N>, orcombinations thereof” are defined by the Applicant in the broadestsense, superseding any other implied definitions herebefore orhereinafter unless expressly asserted by the Applicant to the contrary,to mean one or more elements selected from the group comprising A, B, .. . and N, that is to say, any combination of one or more of theelements A, B, . . . or N including any one element alone or incombination with one or more of the other elements which may alsoinclude, in combination, additional elements not listed.

The exchange 108 implements the functions of matching 110 buy/selltransactions, clearing 112 those transactions, settling 114 thosetransactions and managing risk 116 among the market participants 104 106and between the market participants and the exchange 108, as well as OTRTreasury futures scheduling and valuation functionality 122 foradministering OTR Treasury futures as will be described. The exchange108 may be include or be coupled with one or more database(s) 120 orother record keeping system which stores data related to open, i.e.un-matched, orders, matched orders which have not yet been delivered, aswell as payments made or owing, or combinations thereof.

Typically, the exchange 108 provides a “clearing house” (not shown)which is a division of the Exchange 108 through which all trades mademust be confirmed, matched and settled each day until offset ordelivered. The clearing house is an adjunct to the Exchange 108responsible for settling trading accounts, clearing trades, collectingand maintaining performance bond funds, regulating delivery andreporting trading data. Essentially mitigating credit. Clearing is theprocedure through which the Clearing House becomes buyer to each sellerof a futures contract, and seller to each buyer, also referred to as a“novation,” and assumes responsibility for protecting buyers and sellersfrom financial loss by assuring performance on each contract. This iseffected through the clearing process, whereby transactions are matched.A clearing member is a firm qualified to clear trades through theClearing House.

As used herein, the term “Exchange” 108 will refer to the centralizedclearing and settlement mechanisms, risk management systems, etc., asdescribed below, used for OTR Treasury futures trading, including thedescribed enhancements to facilitate determination of listing date,expiration date and settlement price.

Referring to FIG. 2, a more detailed block diagram of the OTR Treasuryfutures scheduling and valuation functionality 122 is shown whichimplements a system 200 for computing a settlement price at anexpiration date of a cash settled futures contract for the delivery ofan underlying most recently issued (“an on-the-run”) U.S. Treasury notefor a selected tenor of a plurality of tenors, which in one embodiment,may be characterized by a notional face value of $100,000 and theplurality of tenors may comprise 2, 5 and 10 year term to maturity. Thesystem 200 includes: a swap spread value determination (“SSVD”)processor 202 operative to determine a swap spread value of theunderlying most recently issued U.S. Treasury note for the selectedtenor based on a plurality of swap spread quotes of a plurality ofcontributing dealers 206 thereof; and a swap rate value determination(“SRVD”) processor 204 operative to determine a swap rate value of theunderlying most recently issued U.S. Treasury note for the selectedtenor based on a plurality of swap rate quotes of the plurality of thecontributing panel members 206. The system 200 further includes apresent value calculator 208 coupled with the swap spread determinationprocessor 202 and the swap rate value determination processor 204 andoperative to determine a present value of the underlying most recentlyissued U.S. Treasury note of the selected tenor based on a calculationof the difference between the swap spread value and the swap spreadrate. The system 200 also includes a settlement price calculator 210coupled with the present value calculator 208 and operative to derivethe settlement price based on the determined present value of the mostrecently issued U.S. Treasury note of the selected tenor.

In one embodiment, the swap spread value determination processor 202 andthe swap rate value determination processor 204 are coupled with, suchas via the network 102, the International Swaps and DerivativesAssociation (not shown), such as a database provided thereby, the swapspread value and swap rate value being determined based on a surveyedresulting swap spread and surveyed resulting swap rate for theunderlying most recently issued US treasury note of the selected tenorprovided thereby.

In one embodiment, the contributing dealers are selected based on one ofreputation among dealers, perceived expertise, credit ratings, scale ofUS dollar swap market activity, or combinations thereof.

In one embodiment, the quote comprises midpoint of the contributingdealer's actual bid/offer spread for a notional amount of $50 million.

In one embodiment, the determination of the surveyed resulting swapspread and surveyed resulting swap rate occurs during a pollinginterval.

In one embodiment, the determination of swap spread value furthercomprises determination of a trimmed means of the plurality of swapspread quotes and/or the determination of the swap rate value furthercomprises determination of a trimmed means of the plurality of swap ratequotes

In one embodiment, the deriving is not based on a yield to maturity ofthe underlying most recently issued U.S. Treasury note of the selectedtenor.

In one embodiment, the derivation of the settlement price furthercomprises computation the final settlement price as:100*[C/(SY−SP)+(1−C/(SY−SP))*(1+(SY−SP)/200)^(−2*m)]; where m comprisesthe selected tenor, C comprises the notional semi-annual coupon rate and(SY−SP) comprises the difference between the determined swap rate valueand the determined swap spread value of the underlying most recentlyissued U.S. Treasury note for the selected tenor.

In one embodiment, the settlement price is rounded to the nearest ¼ of1/32 of one point.

As shown in FIG. 3, in one embodiment, a system 300 for computing asettlement price at an expiration date of a cash settled futurescontract for the delivery of an underlying most recently issued (“anon-the-run”) U.S. Treasury note for a selected tenor of a plurality oftenors, the system comprising a processor 302 and a memory 304 coupledtherewith. The system 300 may implement the OTR Treasury futuresscheduling and valuation functionality 122 described above. The system300 further includes first logic 306 stored in the memory 304 andexecutable by the processor 302 to determine a swap spread value of theunderlying most recently issued U.S. Treasury note for the selectedtenor based on a plurality of swap spread quotes of a plurality ofcontributing dealers thereof; second logic 308 stored in the memory 304and executable by the processor 302 to determine a swap rate value ofthe underlying most recently issued U.S. Treasury note for the selectedtenor based on a plurality of swap rate quotes of the plurality of thecontributing dealers; third logic 310 stored in the memory 304 andcoupled with the first 306 and second logic 308 and executable by theprocessor 302 to determine a present value of the underlying mostrecently issued U.S. Treasury note of the selected tenor based on acalculation of the difference between the swap spread value and the swapspread rate; and fourth logic 312 stored in the memory 304 and coupledwith the third logic 310 and executable by the processor 302 to derivethe settlement price based on the determined present value of the mostrecently issued U.S. Treasury note of the selected tenor.

Referring back to FIG. 2, there is further shown a system 200 forfurther computing a listing date and an expiration date of a cashsettled futures contract for the delivery of an underlying most recentlyissued (“an on-the-run”) U.S. Treasury note for a selected tenor of aplurality of tenors. The system 200 further includes a schedulingprocessor 212 operative to compute the listing date and the expirationdate based on a U.S. Treasury note auction cycle for a next to be issuedU.S. Treasury note for the selected tenor.

In one embodiment, the listing date, which may comprises a monthly date,is computed as the date which corresponds to the U.S. Treasury's AuctionAnnouncement Date when the selected tenor is one of 2 year or 5 yearand/or the listing date, which may comprise a quarterly date, iscomputed as the date which corresponds to the business day following theU.S. Treasury's Auction Announcement Date when the selected tenor is 10year. In one embodiment, the expiration date is computed as the datewhich corresponds to the date of the subsequent U.S. Treasury Auctionfor the selected tenor. The expiration date and the listing date may becontemporaneously computed.

In one embodiment, the expiration date is computed based on the date ofthe next new auction listed in the U.S. Treasury's Tentative AuctionSchedule on the listing date.

In one embodiment, the listing and expiration dates are computed to soas to match the lifecycle of the cash settled futures contract with thelife cycle of the most recently issued U.S. Treasury note of theselected tenor.

In one embodiment, the scheduling processor 212 is further coupled withan exchange 108, or a processor thereof, and operative to enable amarket participant to trade the cash settled futures contract during the“when issued” period of the underlying most recently issued U.S.Treasury note of the selected tenor.

In one embodiment, the expiration date of the cash settled futurescontract for the delivery of the most recently issued U.S. Treasury notefor the selected tenor always precedes a listing date of a cash settledfutures contract for delivery of a subsequently issued U.S. Treasurynote for the selected tenor.

Referring back to FIG. 3, the system 300 is further operative to computea listing date and an expiration date of a cash settled futures contractfor the delivery of an underlying most recently issued (“an on-the-run”)U.S. Treasury note for a selected tenor of a plurality of tenors, wherethe system 300 further includes scheduling logic 314 stored in a memory304 and executable by the processor 302 to compute the listing date andthe expiration date based on a U.S. Treasury note auction cycle for anext to be issued U.S. Treasury note for the selected tenor.

FIG. 5 depicts a flow chart showing operation of the system of FIGS. 1and 2. In particular FIG. 5 shows a computer implemented method ofcomputing a settlement price at an expiration date of a cash settledfutures contract for the delivery of an underlying most recently issued(“an on-the-run”) U.S. Treasury note for a selected tenor of a pluralityof tenors. The operation includes: determining, by a processor, a swapspread value of the underlying most recently issued U.S. Treasury notefor the selected tenor based on a plurality of swap spread quotes of aplurality of contributing dealers thereof (block 502); determining, bythe processor, a swap rate value of the underlying most recently issuedU.S. Treasury note for the selected tenor based on a plurality of swaprate quotes of the plurality of the contributing dealers (block 504);determining, by the processor, a present value of the underlying mostrecently issued U.S. Treasury note of the selected tenor by calculatingthe difference between the swap spread value and the swap spread rate(block 506); and deriving, by the processor, the settlement price basedon the determined present value of the most recently issued U.S.Treasury note of the selected tenor (block 508).

In one embodiment, the underlying most recently issued U.S. Treasurynote is characterized by a notional face value of $100,000 and theplurality of tenors comprises 2, 5 and 10 year term to maturity.

In one embodiment, the determining of the swap spread value and swaprate value further comprises obtaining a surveyed resulting swap spreadand surveyed resulting swap rate for the underlying most recently issuedUS treasury note of the selected tenor from the International Swaps andDerivatives Association.

In one embodiment, the contributing dealers being selected based on oneof reputation among dealers, perceived expertise, credit ratings, scaleof US dollar swap market activity, or combinations thereof.

In one embodiment, the quote comprises midpoint of the contributingdealer's actual bid/offer spread for a notional amount of $50 million.

In one embodiment, the determining occurs during a polling interval.

In one embodiment, the determining further comprising determining theswap spread value as a trimmed means of the plurality of swap spreadquotes

In one embodiment, determining further comprising determining the swaprate value as a trimmed means of the plurality of swap rate quotes

In one embodiment, the deriving is not based on a yield to maturity ofthe underlying most recently issued U.S. Treasury note of the selectedtenor.

In one embodiment, the deriving further comprises computing the finalsettlement price as:100*[C/(SY−SP)+(1−C/(SY−SP))*(1+(SY−SP)/200)^(−2*m)]; where m comprisesthe selected tenor, C comprises the notional semi-annual coupon rate and(SY−SP) comprises the difference between the determined swap rate valueand the determined swap spread value of the underlying most recentlyissued U.S. Treasury note for the selected tenor. In one embodiment, thesettlement price is rounded to the nearest ¼ of 1/32 of one point.

FIG. 5 further shows a computer implemented method of computing alisting date and an expiration date of a cash settled futures contractfor the delivery of an underlying most recently issued (“an on-the-run”)U.S. Treasury note for a selected tenor of a plurality of tenors. Inparticular, the operation includes computing, by a processor, thelisting date and the expiration date based on a U.S. Treasury noteauction cycle for a next to be issued U.S. Treasury note for theselected tenor (block 510).

In one embodiment, the listing date is computed as the date whichcorresponds to the U.S. Treasury's Auction Announcement Date when theselected tenor is one of 2 year or 5 year.

In one embodiment, the listing date is computed as the date whichcorresponds to the business day following the U.S. Treasury's AuctionAnnouncement Date when the selected tenor is 10 year.

In one embodiment, the expiration date is computed as the date whichcorresponds to the date of the subsequent U.S. Treasury Auction for theselected tenor.

In one embodiment, the computed expiration date comprises a monthly datewhen the selected tenor is one of 2 year or 5 year.

In one embodiment, the computed expiration date comprises a quarterlydate when the selected tenor is 10 year.

In one embodiment, the expiration date is computed at the same time asthe listing date.

In one embodiment, the expiration date is computed based on the date ofthe next new auction listed in the U.S. Treasury's Tentative AuctionSchedule on the listing date.

In one embodiment, the listing and expiration dates are computed to soas to match the lifecycle of the cash settled futures contract with thelife cycle of the most recently issued U.S. Treasury note of theselected tenor.

In one embodiment, the operation further includes enabling a marketparticipant to trade the cash settled futures contract during the “whenissued” period of the underlying most recently issued U.S. Treasury noteof the selected tenor.

In one embodiment, the expiration date of the cash settled futurescontract for the delivery of the most recently issued U.S. Treasury notefor the selected tenor always precedes a listing date of a cash settledfutures contract for delivery of a subsequently issued U.S. Treasurynote for the selected tenor.

Referring to FIG. 4, an illustrative embodiment of a general computersystem 400 is shown. The computer system 400 can include a set ofinstructions that can be executed to cause the computer system 400 toperform any one or more of the methods or computer based functionsdisclosed herein. The computer system 400 may operate as a standalonedevice or may be connected, e.g., using a network, to other computersystems or peripheral devices. Any of the components discussed above maybe a computer system 400 or a component in the computer system 400. Thecomputer system 400 may implement a match engine, margin processing, OTRTreasury Futures scheduling and/or valuation function on behalf of anexchange, such as the Chicago Mercantile Exchange, of which thedisclosed embodiments are a component thereof.

In a networked deployment, the computer system 400 may operate in thecapacity of a server or as a client user computer in a client-serveruser network environment, or as a peer computer system in a peer-to-peer(or distributed) network environment. The computer system 400 can alsobe implemented as or incorporated into various devices, such as apersonal computer (PC), a tablet PC, a set-top box (STB), a personaldigital assistant (PDA), a mobile device, a palmtop computer, a laptopcomputer, a desktop computer, a communications device, a wirelesstelephone, a land-line telephone, a control system, a camera, a scanner,a facsimile machine, a printer, a pager, a personal trusted device, aweb appliance, a network router, switch or bridge, or any other machinecapable of executing a set of instructions (sequential or otherwise)that specify actions to be taken by that machine In a particularembodiment, the computer system 400 can be implemented using electronicdevices that provide voice, video or data communication. Further, whilea single computer system 400 is illustrated, the term “system” shallalso be taken to include any collection of systems or sub-systems thatindividually or jointly execute a set, or multiple sets, of instructionsto perform one or more computer functions.

As illustrated in FIG. 4, the computer system 400 may include aprocessor 402, e.g., a central processing unit (CPU), a graphicsprocessing unit (GPU), or both. The processor 402 may be a component ina variety of systems. For example, the processor 402 may be part of astandard personal computer or a workstation. The processor 402 may beone or more general processors, digital signal processors, applicationspecific integrated circuits, field programmable gate arrays, servers,networks, digital circuits, analog circuits, combinations thereof, orother now known or later developed devices for analyzing and processingdata. The processor 402 may implement a software program, such as codegenerated manually (i.e., programmed).

The computer system 400 may include a memory 404 that can communicatevia a bus 408. The memory 404 may be a main memory, a static memory, ora dynamic memory. The memory 404 may include, but is not limited tocomputer readable storage media such as various types of volatile andnon-volatile storage media, including but not limited to random accessmemory, read-only memory, programmable read-only memory, electricallyprogrammable read-only memory, electrically erasable read-only memory,flash memory, magnetic tape or disk, optical media and the like. In oneembodiment, the memory 404 includes a cache or random access memory forthe processor 402. In alternative embodiments, the memory 404 isseparate from the processor 402, such as a cache memory of a processor,the system memory, or other memory. The memory 404 may be an externalstorage device or database for storing data. Examples include a harddrive, compact disc (“CD”), digital video disc (“DVD”), memory card,memory stick, floppy disc, universal serial bus (“USB”) memory device,or any other device operative to store data. The memory 404 is operableto store instructions executable by the processor 402. The functions,acts or tasks illustrated in the figures or described herein may beperformed by the programmed processor 402 executing the instructions 412stored in the memory 404. The functions, acts or tasks are independentof the particular type of instructions set, storage media, processor orprocessing strategy and may be performed by software, hardware,integrated circuits, firm-ware, micro-code and the like, operating aloneor in combination. Likewise, processing strategies may includemultiprocessing, multitasking, parallel processing and the like.

As shown, the computer system 400 may further include a display unit414, such as a liquid crystal display (LCD), an organic light emittingdiode (OLED), a flat panel display, a solid state display, a cathode raytube (CRT), a projector, a printer or other now known or later developeddisplay device for outputting determined information. The display 414may act as an interface for the user to see the functioning of theprocessor 402, or specifically as an interface with the software storedin the memory 404 or in the drive unit 406.

Additionally, the computer system 400 may include an input device 416configured to allow a user to interact with any of the components ofsystem 400. The input device 416 may be a number pad, a keyboard, or acursor control device, such as a mouse, or a joystick, touch screendisplay, remote control or any other device operative to interact withthe system 400.

In a particular embodiment, as depicted in FIG. 4, the computer system400 may also include a disk or optical drive unit 406. The disk driveunit 406 may include a computer-readable medium 410 in which one or moresets of instructions 412, e.g. software, can be embedded. Further, theinstructions 412 may embody one or more of the methods or logic asdescribed herein. In a particular embodiment, the instructions 412 mayreside completely, or at least partially, within the memory 404 and/orwithin the processor 402 during execution by the computer system 400.The memory 404 and the processor 402 also may include computer-readablemedia as discussed above.

The present disclosure contemplates a computer-readable medium thatincludes instructions 412 or receives and executes instructions 412responsive to a propagated signal, so that a device connected to anetwork 420 can communicate voice, video, audio, images or any otherdata over the network 420. Further, the instructions 412 may betransmitted or received over the network 420 via a communicationinterface 418. The communication interface 418 may be a part of theprocessor 402 or may be a separate component. The communicationinterface 418 may be created in software or may be a physical connectionin hardware. The communication interface 418 is configured to connectwith a network 420, external media, the display 414, or any othercomponents in system 400, or combinations thereof. The connection withthe network 420 may be a physical connection, such as a wired Ethernetconnection or may be established wirelessly as discussed below.Likewise, the additional connections with other components of the system400 may be physical connections or may be established wirelessly.

The network 420 may include wired networks, wireless networks, orcombinations thereof. The wireless network may be a cellular telephonenetwork, an 802.11, 802.16, 802.20, or WiMax network. Further, thenetwork 420 may be a public network, such as the Internet, a privatenetwork, such as an intranet, or combinations thereof, and may utilize avariety of networking protocols now available or later developedincluding, but not limited to TCP/IP based networking protocols.

While the computer-readable medium is shown to be a single medium, theterm “computer-readable medium” includes a single medium or multiplemedia, such as a centralized or distributed database, and/or associatedcaches and servers that store one or more sets of instructions. The term“computer-readable medium” shall also include any medium that is capableof storing, encoding or carrying a set of instructions for execution bya processor or that cause a computer system to perform any one or moreof the methods or operations disclosed herein.

In a particular non-limiting, exemplary embodiment, thecomputer-readable medium can include a solid-state memory such as amemory card or other package that houses one or more non-volatileread-only memories. Further, the computer-readable medium can be arandom access memory or other volatile re-writable memory. Additionally,the computer-readable medium can include a magneto-optical or opticalmedium, such as a disk or tapes or other storage device to capturecarrier wave signals such as a signal communicated over a transmissionmedium. A digital file attachment to an e-mail or other self-containedinformation archive or set of archives may be considered a distributionmedium that is a tangible storage medium. Accordingly, the disclosure isconsidered to include any one or more of a computer-readable medium or adistribution medium and other equivalents and successor media, in whichdata or instructions may be stored.

In an alternative embodiment, dedicated hardware implementations, suchas application specific integrated circuits, programmable logic arraysand other hardware devices, can be constructed to implement one or moreof the methods described herein. Applications that may include theapparatus and systems of various embodiments can broadly include avariety of electronic and computer systems. One or more embodimentsdescribed herein may implement functions using two or more specificinterconnected hardware modules or devices with related control and datasignals that can be communicated between and through the modules, or asportions of an application-specific integrated circuit. Accordingly, thepresent system encompasses software, firmware, and hardwareimplementations.

In accordance with various embodiments of the present disclosure, themethods described herein may be implemented by software programsexecutable by a computer system. Further, in an exemplary, non-limitedembodiment, implementations can include distributed processing,component/object distributed processing, and parallel processing.Alternatively, virtual computer system processing can be constructed toimplement one or more of the methods or functionality as describedherein.

Although the present specification describes components and functionsthat may be implemented in particular embodiments with reference toparticular standards and protocols, the invention is not limited to suchstandards and protocols. For example, standards for Internet and otherpacket switched network transmission (e.g., TCP/IP, UDP/IP, HTML, HTTP,HTTPS) represent examples of the state of the art. Such standards areperiodically superseded by faster or more efficient equivalents havingessentially the same functions. Accordingly, replacement standards andprotocols having the same or similar functions as those disclosed hereinare considered equivalents thereof.

The illustrations of the embodiments described herein are intended toprovide a general understanding of the structure of the variousembodiments. The illustrations are not intended to serve as a completedescription of all of the elements and features of apparatus and systemsthat utilize the structures or methods described herein. Many otherembodiments may be apparent to those of skill in the art upon reviewingthe disclosure. Other embodiments may be utilized and derived from thedisclosure, such that structural and logical substitutions and changesmay be made without departing from the scope of the disclosure.Additionally, the illustrations are merely representational and may notbe drawn to scale. Certain proportions within the illustrations may beexaggerated, while other proportions may be minimized. Accordingly, thedisclosure and the figures are to be regarded as illustrative ratherthan restrictive.

One or more embodiments of the disclosure may be referred to herein,individually and/or collectively, by the term “invention” merely forconvenience and without intending to voluntarily limit the scope of thisapplication to any particular invention or inventive concept. Moreover,although specific embodiments have been illustrated and describedherein, it should be appreciated that any subsequent arrangementdesigned to achieve the same or similar purpose may be substituted forthe specific embodiments shown. This disclosure is intended to cover anyand all subsequent adaptations or variations of various embodiments.Combinations of the above embodiments, and other embodiments notspecifically described herein, will be apparent to those of skill in theart upon reviewing the description.

The Abstract of the Disclosure is provided to comply with 37 C.F.R.§1.72(b) and is submitted with the understanding that it will not beused to interpret or limit the scope or meaning of the claims. Inaddition, in the foregoing Detailed Description, various features may begrouped together or described in a single embodiment for the purpose ofstreamlining the disclosure. This disclosure is not to be interpreted asreflecting an intention that the claimed embodiments require morefeatures than are expressly recited in each claim. Rather, as thefollowing claims reflect, inventive subject matter may be directed toless than all of the features of any of the disclosed embodiments. Thus,the following claims are incorporated into the Detailed Description,with each claim standing on its own as defining separately claimedsubject matter.

It is therefore intended that the foregoing detailed description beregarded as illustrative rather than limiting, and that it be understoodthat it is the following claims, including all equivalents, that areintended to define the spirit and scope of this invention.

We claim:
 1. A computer implemented method of computing a settlementprice at an expiration date of a cash settled futures contract for thedelivery of an underlying most recently issued U.S. Treasury note for aselected tenor, the method comprising: deriving, by a processor, thesettlement price based on a present value of the most recently issuedU.S. Treasury note of the selected tenor determined by calculating thedifference between a swap spread value and a swap rate value therefore,the swap spread value and the swap rate value having been determined soas to be immune from skew by any one market participant.
 2. The computerimplemented method of claim 1 wherein the underlying most recentlyissued U.S. Treasury note is characterized by a notional face value of$100,000 and the selected tenor comprises on of a 2, 5 or 10 year termto maturity.
 3. The computer implemented method of claim 1 wherein thedetermination of the swap spread value and swap rate value furthercomprises obtaining a surveyed resulting swap spread and surveyedresulting swap rate for the underlying most recently issued US treasurynote of the selected tenor from the International Swaps and DerivativesAssociation.
 4. The computer implemented method of claim 1 wherein thedetermination of the swap spread value and swap rate value is based on aplurality of swap spread quotes and swap rate quotes of a plurality ofcontributing dealers thereof.
 5. The computer implemented method ofclaim 4 wherein the contributing dealers are selected based on one ofreputation among dealers, perceived expertise, credit ratings, scale ofUS dollar swap market activity, or combinations thereof.
 6. The computerimplemented method of claim 4 wherein the swap spread quote comprisesmidpoint of the contributing dealer's actual bid/offer spread for anotional amount of $50 million.
 7. The computer implemented method ofclaim 4 wherein the swap spread value is further determined as a trimmedmeans of the plurality of swap spread quotes
 8. The computer implementedmethod of claim 4 wherein the swap rate value is determined as a trimmedmeans of the plurality of swap rate quotes
 9. The computer implementedmethod of claim 1 wherein the determination occurs during a pollinginterval.
 10. The computer implemented method of claim 1 wherein thederiving is not based on a yield to maturity of the underlying mostrecently issued U.S. Treasury note of the selected tenor.
 11. Thecomputer implemented method of claim 1 wherein the deriving furthercomprises computing the final settlement price as:100*[C/(SY−SP)+(1−C/(SY−SP))*(1+(SY−SP)/200)^(−2*m)]; where m comprisesthe selected tenor, C comprises the notional semi-annual coupon rate and(SY−SP) comprises the difference between the determined swap rate valueand the determined swap spread value of the underlying most recentlyissued U.S. Treasury note for the selected tenor.
 12. The computerimplemented method of claim 1 wherein the settlement price is rounded tothe nearest ¼ of 1/32 of one point.
 13. A system for computing asettlement price at an expiration date of a cash settled futurescontract for the delivery of an underlying most recently issued U.S.Treasury note for a selected tenor, the system comprising: a settlementprice calculator operative to derive the settlement price of the mostrecently issued U.S. Treasury note of the selected tenor base on apresent value determined based on a calculation of the differencebetween a swap spread value and a swap rate value therefore, the swapspread value and the swap rate value having been determined so as to beimmune from skew by any one market participant.
 14. The system of claim13 wherein the underlying most recently issued U.S. Treasury note ischaracterized by a notional face value of $100,000 and the selectedtenor comprises one of a 2, 5 or 10 year term to maturity.
 15. Thesystem of claim 13 wherein the swap spread value determination processorand the swap rate value determination processor are coupled with theInternational Swaps and Derivatives Association, the swap spread valueand swap rate value being determined based on a surveyed resulting swapspread and surveyed resulting swap rate for the underlying most recentlyissued US treasury note of the selected tenor provided thereby.
 16. Thesystem of claim 13 wherein the swap spread value and swap rate value aredetermined based on a plurality of swap spread quotes and swap ratequotes of a plurality of contributing dealers thereof.
 17. The system ofclaim 16 wherein the contributing dealers are selected based on one ofreputation among dealers, perceived expertise, credit ratings, scale ofUS dollar swap market activity, or combinations thereof.
 18. The systemof claim 16 wherein the swap spread quote comprises midpoint of thecontributing dealer's actual bid/offer spread for a notional amount of$50 million.
 19. The system of claim 16 wherein the determination ofswap spread value further comprises determination of a trimmed means ofthe plurality of swap spread quotes
 20. The system of claim 16 whereinthe determination of the swap rate value further comprises determinationof a trimmed means of the plurality of swap rate quotes
 21. The systemof claim 13 wherein the determination of the surveyed resulting swapspread and surveyed resulting swap rate occurs during a pollinginterval.
 22. The system of claim 13 wherein the deriving is not basedon a yield to maturity of the underlying most recently issued U.S.Treasury note of the selected tenor.
 23. The system of claim 13 whereinthe derivation of the settlement price further comprises computation thefinal settlement price as:100*[C/(SY−SP)+(1−C/(SY−SP))*(1+(SY−SP)/200)^(−2*m)]; where m comprisesthe selected tenor, C comprises the notional semi-annual coupon rate and(SY−SP) comprises the difference between the determined swap rate valueand the determined swap spread value of the underlying most recentlyissued U.S. Treasury note for the selected tenor.
 24. The system ofclaim 13 wherein the settlement price is rounded to the nearest ¼ of1/32 of one point.
 25. A system for computing a settlement price at anexpiration date of a cash settled futures contract for the delivery ofan underlying most recently issued U.S. Treasury note for a selectedtenor, the system comprising a processor and a memory coupled therewith,the system further comprising: first logic stored in the memory andexecutable by the processor to derive the settlement price of the mostrecently issued U.S. Treasury note of the selected tenor base on apresent value determined based on a calculation of the differencebetween a swap spread value and a swap rate value therefore, the swapspread value and the swap rate value having been determined so as to beimmune from skew by any one market participant.
 26. A system forcomputing a settlement price at an expiration date of a cash settledfutures contract for the delivery of an underlying most recently issuedU.S. Treasury note for a selected tenor, the system comprising: meansfor deriving the settlement price based on a present value of the mostrecently issued U.S. Treasury note of the selected tenor determined bycalculating the difference between a swap spread value and a swap ratevalue therefore, the swap spread value and the swap rate value havingbeen determined so as to be immune from skew by any one marketparticipant.